Can Banks Play A Role In Social Change?

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Ashoka, the global organization that identities and invests in social entrepreneurs, is aiming to help the world’s banks launch a social finance innovation platform.

A manifesto developed last year by Ashoka and Innotribe, the innovation arm of financial services provider SWIFT, points out that consumers are demanding more transparency and a better balance between profit and social values. Martine De Weirdt, the member of the Innotribe team driving an initiative called Banks for A Better World, is exploring whether there is a role for SWIFT to rally the banks around social financing (see the story on page 4).

To this end, SWIFT is proposing to explore the benefit of collaboration with Ashoka on concrete initiatives that would allow banks and financial institutions to widen their focus. At Sibos Osaka, a gathering of 8,500 banks, Ashoka fellows will present existing, scalable projects to address financial inclusion, financial literacy, and new banking products and services. If the industry supports Innotribe’s imitative, financial institutions might indeed come to be seen as “banks for a better world.” Read on to find out more about the projects being presented.

Giving Children A Financial Education

Jeroo Billimoria has an ambitious goal: help the 2.2. billion children who do not have access to a financial education and financial services learn the importance of savings and other financial basics. This is everybody’s problem because a culture of debt and a general failure by many people to understand the basics of finance led to poor financial decisions that ultimately played a role in the current financial crisis, she says. “The future of the world economy is in danger if we don’t give tomorrow’s adults the ability to manage their finances,” says Billimoria.

Billimoria, a native of India, is the founderof Children & Youth Finance International (http://childfinanceinternational.org), a year-old organization which aims to help children rise out of poverty by teaching them financial awareness and giving them access to financial services. Almost 20 million children have been reached by Child & Youth Finance International and Billimoria wants to increase that number to 100 million in 100 countries by 2015.

Rather than have Child & Youth Finance International go it alone, Billimoria, an entrepreneur at heart, is aiming to create a movement of like-minded organizations that coordinate and share best practices.

Before setting up Child & Youth Finance International Billimoria was executive director of Aflatoun, a child savings and financial education organization. Aflatoun has had success teaching poor children to save, busting a myth that this was not possible, but she wanted to reach what she has called “the next level” by actually providing the financial services.

Before turning to financial services, Billimoria had set up Childline India Foundation and Child Helpline International in a bid to reach out to children in need through emergency call-in centers. That entrepreneurial spirit will have her moving on again soon.

“Reshaping finance is a huge task and I want to take on several aspects of this space so I am handing over CYF, but I will remain in the space,” says Billimoria.

Fair Finance

After working in Bangladesh with microfinance pioneer Muhammad Yunus, the Nobel Prize-winning founder of Grameen Bank, and witnessing firsthand how microcredit can help people emerge from poverty, Faisel Rahman returned to his home in London and asked himself a simple question: Why can’t we do that here?

And so he created Fair Finance (www.fairfinance.org.uk), which offers a range of financial products and services to people in the greater London area who have traditionally not had access to loans, bank accounts and other things many people take for granted. Rahman, who founded Fair Finance in 2005 and serves as managing director, wants to reach the estimated 20% of the working population in the United Kingdom who are being overlooked.

“Somewhere along the way our banks have forgotten everyone needs access to appropriate and affordable financial services,” says Rachman, 37. “Fair Finance is trying to fix that problem by reminding ourselves that humans are just as important as the product themselves, and that if we start with the people who’ve been left behind we can redesign our approach to finance.”Many of those not being served by traditional banks turn to loan sharks or payday lenders for credit that can sometimes cost several thousand percent in interest.

Fair Finance not only offers reasonable interest rates for people needing a loan to tide them over to payday, but also gives loans for business start-ups.

Banking The Unbanked

Brian Richardson estimates that 70% of the one billion people in Africa do not have access to banking services. That is why he founded WIZZIT (www.wizzit.co.za), which offers mobile-based banking services in six African countries.

“Our philosophy is one of bringing the bank to the people rather than the traditional bank paradigm of getting the people to come to the bank,” says Richardson. “You can only do this through technology that makes the solution affordable to the lower end of the market. It would be a mistake, however, to believe the solution to the unbanked is solely about technology. Technology is the enabler but it has to be driven by a passionate business case and model.”

South Africa-based WIZZIT offers its almost 5 million clients a low-cost bank account that uses mobile phones to make payments, money transfers and prepaid purchases. Clients also get a debit card that can be used in retail stores.

The vast majority of customers WIZZIT signs up have never had a bank account or have only used banks to withdraw cash.

“In developing the WIZZIT model and product we always had to bear four critical aspects in mind: affordability, accessibility, availability and relevance,” says Richardson, who was born in Uganda to Irish parents, moved to Kenya, and then did most of his schooling in South Africa. “The main competition comes from the mattress, which has no perceived cost, is accessible and available and for those without financial education is relevant.”

WIZZIT has launched with partner banks in Zambia, Tanzania, Rwanda, Botswana, Namibia and South Africa as well as in Romania. Richardson says other deals are imminent in Africa and he aims soon to boost WIZZIT’s number of clients ten times to 50 million.

“That would still only be scratching the surface,” says Richardson, 55, who is WIZZIT’s managing director. “With 3 billion people in the world financially excluded, the market is enormous and our vision is to make economic citizens of all these people denied access to even a basic bank account.”

Human Capital Performance Bonds

With government coffers everywhere under strain, it is becoming increasing hard for politicians and non-profit organizations to fund social services such as anti-poverty programs, drug treatment initiatives and supplemental education. Steve Rothschild, a former executive vice president of US food giant General Mills, thinks he has a solution.

Rothschild founded Invest in Outcomes (http://investinoutcomes.org) to develop the idea of human capital performance bonds, or “hucaps,” that would be issued by the state of Minnesota and sold to private investors such as banks, individuals or pension funds just as traditional municipal bonds are.

Though similar to municipal bonds, Hucaps focus their funding on social enterprises. Proceeds from the sale of hucaps enter a pool that gets distributed to providers of services that have demonstrated their economic benefit to the state. The bigger the benefit to the state – which pays the interest on the bond and then pays it off with the cash flow created by increased tax revenue and cost savings generated by the service provider that received funding – the higher the disbursement.

The Minnesota legislature approved a $10 million pilot hucap and is still in the process of deciding which social services will be funded.

Rothschild, who serves as Invest in Outcomes’ president, in 1994 founded Twin Cities RISE!, an organization fighting poverty in the Minneapolis-Saint Paul area by providing long-term job training for adults to help them get full-time jobs paying a living wage.

Boosting SMES

In the world of entrepreneurship there is an over-looked group of budding businesses that are too big for microfinance lending and yet too small to turn to traditional banks. Ben Powell calls them the “missing middle.”

To serve those entrepreneurs in developing economies Powell, an Ashoka Fellow, founded Agora Partnerships (http://agorapartnerships.org), which offers small and medium companies throughout Latin America a business accelerator that helps put them in contact with a network of investors and consultants.

“It’s a problem for entrepreneurs to access capital if they don’t have collateral; banks don’t want to take the risk and there are almost zero angel investors,” says Powell.

“This is beginning to change which is very exciting,” he says. “If we collectively can get the right kind of human, social, and financial capital to those entrepreneurs who can use it to create impact, we change the world.”

Powell, 42,who has an MBA from Columbia in New York and a Master’s in Foreign Service from Georgetown in Washington, D.C., concentrates the efforts of the Agora Accelerator on entrepreneurs who have proven they are capable of success on their own, but are convinced that with the addition of social, human and financial capital they could expand their businesses.

Companies that turn to the Agora Accelerator usually have identified a need to borrow more than $50,000. The average size of deals for companies that have participated in the program is about $250,000. Companies usually have at least $50,000 in annual revenue when they enter the program, though the average in the last two sessions was $325,000.

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